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You don’t know what you’re doing: English football heads for disaster

You don’t know what you’re doing

By Phil Gregory.

If you haven’t already read Tony’s cracking piece on football finance that went up on Monday, I’d recommend it before you read any further.

As a humble second year economics student, I’d like to share with you some of the insights my studies have given me in regards to the current financial circus that is the English Premier League.

In economics, we usually assume that the owners of a company (in our case, a football club) look to  make the most money they can. This makes sense: companies look to reduce costs and out-compete their rivals, bringing benefits to their consumers (you and I) as well as rewarding themselves with the profits.

This has to be adjusted slightly when applied to football, where there are two conflicting objectives: profit and glory. Clubs can be profitable, but they often seek to spend beyond their means in the pursuit of glory, either with the help of a wealthy owner (Chelsea, City, Villa) or racking up debt (Portsmouth, Everton, Hull). It’s the whole idea of a profit versus glory tradeoff: in order to challenge for the big prizes, you must have the best players, and to get these you have to pay the biggest wages.

City illustrate this well. Under Pearce they were involved in relegation fights in his last couple of seasons. In comes, Shinawatra, and they buy the midtable players of the world, the Petrovs, the Elanos and the Benjanis. This investment was a fair sum, but not bankbreaking, and yet it yielded a significant move up the table. Lets say roughly £50million bought them a midtable position.

Under Hughes, a significant investment saw them spend significant sums on purchasing players considered some of the best in their positions in the league: the Adebayors, the Barrys, the Bridges. These players are pushing them them into contention for the Champions League places. A vast sum is spent (circa £200million on transfer fees alone) for only a few more places up the league table.

Next however, they will seek to challenge for the title. Compared to the previous outlay on players, this will undoubtedly be the most expensive. Who do you buy to improve significantly on Barry, Toure and Adebayor? You’re looking at Fabregas, Iniesta, Alonso, Puyol, Fabiano etc. Each one of them would require a truly vast transfer fee to even remotely tempt their owners to sell. Yet in terms of points gained compared to money spent, this would be the least “efficient” of the three phases I have divided City’s development up into.

It is this short-term  method of thinking that dominates the English Premier League and ensures most of the clubs are loss making, not an issue with football itself as an industry damned to be lossmaking. City are the most extreme example, but to lesser degrees, Everton and Villa seek to spend beyond their means to compete, while other clubs such as Hull and Wigan  spent big and gambled to get into the lucrative “top twenty”  Some believe this is how a football club “should be”, indeed a comment on this site was of the opinion that a football club can never be profitable and successful. I disagree.

A football club is in an incredibly advantageous position as a money-making machine. A true fan never changes their team, it is part of their  DNA. How many could say the same about the supermarket they shop at? If Tesco raised prices 60% over five years, would you still shop there? No. And yet Manceshter United still sell out Old Trafford  despite doing the football equivalent of this. (though the season ticket waiting list isn’t too lengthy).

Match attendance is almost completely unrelated to ticket price – much more important is the importance of the game, the quality on display etc.

This is but one example of how successful clubs can be a moneymaking machine. Ticket prices could rise year on year (up to a point) and STILL the ground would be full. Factor in the enormous merchandising market: the clubs have the sole (legal) right to sell their teams shirt, and a captive market sell it to, so why are these clubs loss making?

Lets have a look at West Ham, a club stricken with debt. Gross incompetence amongst the fools running the club would be my call. Negligence in regards to transfer dealings: just look at the injury history of some of the players they bought BEFORE they joined West Ham… why take that gamble?  The wages paid for average players; sheer insanity. While a wish to strengthen the playing staff with the spectre of relegation looming a few years ago (aside: how well that has worked given their current situation) I can vaguely empathise with a willingness to spend to avoid relegation, but many of the players brought in were wholly unsuitable.

And then there is the dire mismanagement of the commercial side of the club (the side that anyone with a business background should be able to make very profitable given the loyalty of fans). Check the link at the bottom of the article for more information on this.

Or there is the well-publicised chronic mismanagement of MUFC. While leveraged debt is made out to be the devil, in various industries it is not necessarily the curse it is is made out to be in football. Few businessmen have the money to buy a football club outright; they require a loan, and this is secured on the club/business they purchase.

The mismanagement comes in regards to the PIK debt: this meant that the loan’s interest rate was very much a burden, and if United ceased to grow in value faster than the loan debt grew… you know the rest. One they couldn’t secure “safe” loans – it says a lot when you are borrowing from hedge funds and not banks – the stakes rose, and thr Glazer’s should have rethought their plans.

But even given the current situation, if the Glazers weren’t so blindly short-termist they could come out of the situation much better off, and with a better name too. Instead of asset stripping the club, instead of plundering “management fees” from the coffers, put every spare penny into paying down the debt. The debt is enormous, but so is United’s moneymaking ability.

If the American’s weren’t so intent on lining their own bank accounts, they more than likely could have paid the interest bill. Pay the interest bill, and the debt stops growing, and you pay the same (not more) interest every year. The onerous debt suddenly becomes sustainable, and ceases to grow. God fordid, they could take a leaf out of our book and pay it down year on year if they came into some money.

Alex Ferguson may be fuming at the situation, but he is part of the problem. By consistently bending to the selling clubs demands (see the excessive fees for Nani, Anderson, Tosic and in particular Berbatov) and paying over the odds, he undermines his bargaining position, therefore guaranteeing he will get ripped off next time. Compare this to our own Arsène who refused to meet Zenit’s demands and got us a Russian genius for £12million. Being “stingy” and “stubborn” does have its benefits, D and G squad!

So how do I believe football should be? I truly believe football clubs can be (and should be) self-sustaining businesses, but you must always take into account it is a football club too. Raise ticket prices and charge £2.50 for a cup of tea if people will pay it. Make a profit. And then put it into the managers war chest. Run the club like any other business: cut costs wherever possible, but instead of lining the pockets of the owners, reinvest the funds in the playing staff or put it aside for a rainy day, stadium expansion etc.

This way, a club can still strive for trophies but within its means. An ever-expanding income results in increased profits, which in turn are invested into the team.

Naturally, however, this model can be outspent by the sugar daddy owner. Stamford Bridge may be a shoebox compared to the Emirates, but if Abramovich is going to convert his debt into equity every 12 months, a sustainably run club will be unable to keep up. We refuse to accept performance enhancing drugs (don’t we Rio), and yet we allow clubs to be pumped full of £50 notes?

Step in new regulations. My suggestions:

A strengthened Fit and Proper Persons Test (as it stands, the criteria are foolishly lax given the rollcall of criminals that own or have owned English Clubs). I’ll leave it to the lawyers to write the smallprint here.

Improved accounting – Clubs’ parent companies must produce accounts to English standards, not according to the standards of whatever tax haven they happen to reside in. Tottenham Hotspur, I’m looking at you.

Increased regulation – Nothing too stringent, I believe in the market, but the market requires certain supports. Clubs must prove an ability to be sustainable in the event of relegation (Newcastle’s “we’re too big to go down so won’t bother with relegation wage cut clauses” comes to mind) or unexpected success (Pompey’s bonuses for winning the FA Cup were more than the money the cup run made the club according the David James).

All this together would, in my opinion, do much to avoid the current glut of financial crises at clubs.  Better ownership regulation ensures clubs are run by people who actually know what they are doing, tighter regulation ensures basic precautions are taken and improved accounting means problems can be recognised before a club sells the bulk of their playing staff.

———————————

UNTOLD RUMOURS of an ECONOMIC NATURE

A hidden microphone inside the executive lounge at the KGB headquarters in Fulham has revealed the conversation that the Abramovich team had with the footballers at the club.   After warning them that their current behaviour had to stop, the mic picked up this…

“What sort of behaviour boss?”

“Whoring and money grabbing and speeding in your car”

“Who does that boss?”

“I’m not going to bandy names with you, you turgid little pip squeak.”

“Well can I ask a question boss?”

“If you must!”

“Is buying stocks and shares from people ok?”

“Of course it is.  I am talking about picking up bints in clubs and racing your car at 150mph in a build up area contrary to section 23 of the Road Traffic Act.”

“Is it ok to pay them less than the shares are worth?”

“Yes if they want to sell, of course, but don’t bother me with this minuscule detail, I am talking about having it off with a fellow player’s bit of stuff on the side.”

“So if my henchmen were to go round offering poor innocent people 5p for oil and gas shares worth £500 each and so build up a near monopoly for myself, so that I could hold the whole country and indeed much of the west to ransom over oil and gas supplies for years to come would that be ok would it boss?”

At this point there was the sound of shouting, chairs being smashed and a considerable amount of noise that sounded like a fist fight.  Then we lost connection.

Elsewhere…

The origin of humour in football: Eddie Hapgood, Football Legend

Magritte and the Champions League

Why did Arsenal move to Highbury, and not somewhere else?

The Porto Free Kick – the Ref’s point of view

FA Forget to Shut the Stable Door

Arsenal in 1910 – the complete story in the most wonderful book about Arsenal ever written by anyone, ever, honest, I am not kidding you.

———————

Untold Arsenal is edited by Tony Attwood, and written by guest writers.  If you would like to contribute, please send an article to Tony@hamilton-house.com.  Articles should be presented in Word, and should be in keeping with the style and ethos of this web site and its proclaimed view-point.

All content is (c) 2010 authors and Untold Arsenal.  If quoting please mention Untold Arsenal and give the web site address (URL).

Postscript: It’s bloody snowing again in the midlands.

35 comments to You don’t know what you’re doing: English football heads for disaster

  • Marc

    Nice piece Phil but I find it shocking that Untold Arsenal is the only place you seem to find this kind of view.

    Maybe you could do me a favour though. I’m trying to figure out why Abramovich would convert Chelsea’s debt into equity. The reasons I can think of are:

    i) He wants to sell the club and it’s easier to get his money back that way rather than selling the club and getting the new owners to guarantee repayment of the debt.

    ii) He’s worried about UEFA’s talk on debt and being denied access to the CL.

    iii) He’s pissed off with pumping money into the club and has decided that it has to become self sufficient.

    All of the above make some sort of sense to me but raise another question. If any or all of the above are true why would Abramovich sanction and fund the purchase of another wave of £30 million players?

  • don't believe the hype

    Really spot on analysis Phil. The FA will not act until one of their favoured clubs get into serious trouble i.e. Liverpool or Man U. I think they still believe both clubs are too big to really fail, but they are standing back and allowing a minnow like Portsmouth go to the wall. The FA should be responsible for the regulation and stewardship of the game, but whilst their laissez-faire approach was workable when football clubs were locally owned it is no longer relevant for the modern international ownership model. No one is asking for the game to become overly hide bound by regulations, but at least they should be enforceable and they should be applied consistently.

  • Phil Gregory

    Marc: It’s a result of UEFA’s financial doping rules. Previously Chelsea would’ve fallen foul, now they don’t. From Abramovich’s point of view, he has nothing to gain: he already owns 100% of the club, so by effectively writing off the debt for shares, he doesn’t become more asset rich. As far as I know, say he had 100 shares which had a value of £100million. If now, after the debt-shares magic trick he now holds 150 shares, his holding has no more value.

    The onyl way I can see him gaining somehow is if by effectively writing off the debt, the sale price of Chelsea FC is now higher. However, evcen if this is the case, he may receive a higher sale price, but the “new” sale price won’t take into account the entire value of the debt write-off. No matter which way you look at it, he can’t gain from it, bar it allowing his plaything CL access. Apparently UEFA have said they are going to close off this loophole, so we will see.

    Anyone with more specialist knowledge of shares and the like feel free to chip in/correct me!

    Dont believe the hype: exactly. Weak regulation was fine when clubs’ owners had the interest of the club at heart. Can you imagine the Glazers caring if United become midtable due to an inability to make a net spend on transfer fees over the next ten years? No, because they will have made substantial personal financial gain.

    It’s a shame, and my proposed reforms aren’t too har to implement and yet would mostly deal with the problem. Madness

  • Sam

    Thanks for the good points, I wish more would think this way. Financial sensibility is the most prominant reason for me to support Arsenal.

    Can you please do another article on my suspicions as below:

    1- There may be a major element of the underworld (i.e. black money) in football (specially the English kind, it seems!), along with the everyday fraud seen around

    2- Some clubs are being used as major money-washing machines, hence the quick turnover in owners. Some hightened player transfer prices are due to such factors

    3- Another reason for high transfer prices is that managers simply use (read mis-use) the system to their advantage. They will use the short term glory while they are at the club, and leave before things start to crumble (why does the name “Harry” ring in my ear?!). Even Alex doesn’t mind ManU getting ruined after his departure, it will simply protect his legacy!

    4- Some managers may be hiking transfer fees in order to get their own cut, sometimes through their son/brother/associate (Oh, God, why won’t this ringing in my ear stop!?)

    Am I being pessimistic, or is there some truth to all this?

  • don't believe the hype

    Sam, I think a lot of your suspicions could be correct. I think there is a lot of dodgy money floating around and I also believe there is a lot of corruption happening on the pitch as a result. I mean, £50/60m to buy a struggling club through a friendly 3rd party wouldn’t be too hard to achieve to buy a few results. A threat here, a favour there and the odd pay off, it’s not like it hasn’t happened before.

  • Phil Gregory

    Sam, I have to be honest with you, I don’t sign up the conspiracy sign of football. That said, some of your points do hint at conflicts of interest, and this is a very real danger. Managers have had clauses where they get a cut of fees, and this is a concern as their personal interest conflicts with the club.

    Imagine in Wenger got say, 10% of the profit made on every player he bought and later sold. Firstly, he’d be insanely wealthy (and deservedly so!). However, consider how this would impact on any decision-making process. As it is, Barca could bid £60million for Cesc, and if Cesc wanted to stay, Wenger would turn it down. Now, if Wenger would get a cut of that fee, he may be tempted to sell, ie he is tempted not to act in the club’s interest.

    Perhaps Arsene wasn’t a good example to use, given how upstanding and principled he is. Apply it to any other manager, and you can see how dangerous it can be. Thankfully, this practice isn’t (as far as I know) widespread.

    Transfer fees and the reasoning behind them is one area I will look at at some point in the near future, though

  • Phil I would like to thank you not only for writing the piece but also offering it to Untold to publish it. It is exactly where I want Untold to be – pushing forward the debate on the economics of football.

    I would only disagree on one point of detail. You said

    A strengthened Fit and Proper Persons Test (as it stands, the criteria are foolishly lax given the rollcall of criminals that own or have owned English Clubs). I’ll leave it to the lawyers to write the smallprint here.

    The problem with that is that if you look at the Portsmouth case at least one of the crooks who have run the club was a bent lawyer who has been debarred from practice because of his habit of feeding faked documents to the judges in court cases.

    I think they would have a better chance of getting it right if they just threw out the FA and EPL committees and started again.

    Tony

  • ibbs

    A self sufficient chelsea??????hahahahahahahahahahahahaha.

  • tim

    Phil, this is an excellent article, as usual.

    When you think about it, it’s simply absurd that so many clubs are going bankrupt!

    You’ve convinced me that it’s the ethos of buying, rather than developing players, that is leading clubs into ruin.

    It’s a classic case of diminishing returns…plus, Man City has to pay a premium compared to clubs like Real or Barca (or even a club like the Chelsea) because they lack history….

  • Valentin

    English newspaper have started to realise that Football does not live in a empty bubble out of reality. Finance are important.
    Most football were using the HM tax and revenue as an additionnal bank loan. Clearly, the government has decided to put a stop to that. HM tax and Excise are now making sure that they are getting the money due, and we see more winding up order for football club. Pompey being the most visible club.
    There is some report that Aston Villa’s Andy Lerner has told Martin O’Neil that next season budget will be kept. After outspending Arsenal for the last three years, Aston Villa will have to raise money by selling players. They may even have to sell fringe players to decrease the wage bill.
    Anybody who had a look at Aston Villa knew that the day of reckoning or at least wise up was coming. Yet according to uninformed football correspondants Aston Villa was one of the better run club.
    In view of the new UEFA rules and the new financial world order, it is possible that in 5 years the team at the top of the premiership may be different from today.
    Manchester United have financial problems, but the assumption that with the wide support nothing bad can happen. “They can always raise the price.” Guess what they can’t, for the first time the number of season ticket holder has diminished. They will still play on sold out game, however they may have to advertise to fill their stadium. Will they fill up Carling Cup?
    Chelsea, will it survive if the russian oligarch went away? No need to answer that.
    Liverpool needs an injection of 100 millions before June. Does anybody belive that they will fin a billionaire foot before next season? IMHO it is unlikely so they will have to sell their assets to appease the bank. The only assets they can sell are their players. With a firm offer from Manchester City for Torres and Gerrard coming this summer, they will sell. benitez will then leave. All the rats will then leave the sinking ship.
    Aston Villa, has already been reviewed earlier.
    Everton will also have to sell one of the young players to avoid making a running loss. Manchester United has already make the noise that they are interested in Jack Rodwell.

  • Marc

    Phil – The general point behind my point was is Abramovich going to continue to fund the purchase of players and then turn the debt into equity? If that is the case it just shows how ridiculous, corrupt and impotent the bodies that control football are.

  • Phil Gregory

    Tony: Too kind. It’s a pleasure. I’m planning on more of these articles, looking at the money side of football. Transfer fees and the top four are next on the agenda 🙂

    my line of thinking is that reform of what he have is always more likely than throwing it out the window and starting afresh. My think being – people rarely admit they were wrong, and starting afresh is admitting they messed up. Reform so that anybody with any criminal convictions cannot own the club, and you have the dodgy lawyer situation legally outlawed, and prevented from reoccuring.

    Moreover, any decent owner with the club’s best interest at heart wouldn’t sell the club to such dodgy people. Look at Arsenal, and how tightly we vet those involved in the upper echelons of the club. They wouldn’t sell up to someone to make a fast buck – even Lady Nina, on the outside hasn’t! Good owners effectively self-regulate: if they think the potential buyers are crooks, they’ll forgo the money on offer.

    Tim: Spot on. And when you delve deeper, the cost of buying a player is even greater. New players will geenrally demand higher wages than youth players that are being developed/ mature players on contract renewals.

    There is an insane amount of money to be made in football if you have the sense to see it.

  • Valentin

    In France an independent body oversee the account of each. At the beginning of the season, that body checks that the clubs will be able to fullfill all their financial obligation (debt, salary, travel cost, …) for the coming season. If the club cannot convince that they have enough money the club is automatically relegated.
    Proof of lying for the previous season is systematically sanctionned by relegation.
    A couple of years ago, Marseille was caught lying on their budget, they got relegated. I cannot see the English FA doing the same thing for Manchester United, Chelsea or Liverpool.

    The result is that there is very few irresponsible behaviour by French club. That stopped them competing at European level, but now with the new UEFA rules they may be better placed.
    The lack of money has the good consequence is that coaches are less likely to be checkbook coach. the Ligue 1 has a couple of good coaches that do a very good job without spending a fortune: Laurent Blanc, Christian Gourcuff, Rudy Garcia, Rene Girard.

  • Paul C.

    Phil – one point, you say the way a club should be run is to make a profit, which would then be put into the managers war chest. I totally disagree with that. I think the manager should be expected to generate transfer funds by himself, with only exceptional one-off additions provided by the club itself. That is the way AW has always operated and I think it is the right way. Profits should be spent instead on infrastructure and wages, with excess funds being set aside for that “rainy day” when the club might really, really, really need that 50million in spare change. That is the way that clubs were always traditionally run. The idea that a manager should get all of the club’s profits to spend himself is a very new, and media created, idea.

  • walter

    Keep them coming Phil. Real nice article once again on the financial side of football. And again the comments section is on a very high level.

    Valentin, thanks for your input on this. I presume you are French ? I had heard of the ruling in France a bit but you cleared some things and gave me information I didn’t know. May I ask you if you know how long that indipendent body is working ? Dit it started after the corruption scandal wiht Tapie at Marseille ? Just wondering you know.

    I think it could be wise for the EPL to have a look at the French system. In Belgium you have a similar system but the body that has to give a license and somewhat the same conditions mentionned by Valentin is a part of the FA and is as incompetent as the Fa itself. One club bankrupt during the season despite the financial ruling.

    So yes just look at France I would say.

  • don't believe the hype

    I wonder if Arsene had been reading Untold Arsenal?

    http://www.arsenal.com/news/news-archive/wenger-the-problem-with-club-ownership

  • AGS

    Great article Phil.
    In the case of Chelsea, I already think we are witnessing the beginnings of the end. There is no new contract in sight for Joe Cole (not surprising really as he is demanding £100k per week) and he is likely to leave at end of season. I’ve also read that the club have dug their heels in with Anelka as well who also appears to be demanding £100k plus a week. But can you blame them for asking for this when most of their team mates are on £100-£150k per week? Contrary to reports in the press, I find it very unlikely that Chelsea will spend more than £25m total in the summer. Abramovich knows that they cannot continue on the same model and I don’t think he will want to put much more into the club now. He is already £200m down in my estimation – he has put approx. £700m into Chelsea, but on an open market the club cannot be worth much more than £500m. they just don’t have the assets (mainly ageing players with declining sale value now) or ground size to be worth that much.
    As for transfers and fees, I am sure that Arsene Wenger commented a couple of years back that transfer fees will become a thing of the past in the near future. I personally thought that the Bosman ruling would see to this because it would mean that players would no longer sign long term tied contracts with clubs. The Bosman ruling has allowed players freedom of movement so they can be like the rest of us in their employment so why do footballers contracts not have normal 30day notice periods in them like most of us who have normal jobs. To me the Bosman ruling makes a mockery of things and if you are going to allow players freedom of movement then it must be exactly that and allow them to move at any time. If anything it has pushed transfer fees higher for players in contract to clubs and resulted in silly get-out clauses.

  • Ole Gunner

    I think the Premier League should require any investor buying a club to say upfront how much they will invest in the club in a 5 year period. Then they should have to post a bond for that amount. I don’t think the Premier League should have a minimum investment i.e. any prospective owner can plan any level of investement he wants (including £0) but this information should be made public.

    That would avoid the situation where anyone with an arab name can buy an EPL club and also the Man City situation where people just assume the owners have endless funds.

    Man City/Chelsea are dangerous because they cause inflation in wages & transfer fees. As we’ve seen with Abramovich, no owner has a limitless budget. However, the impression that some do is immensely inflationary for the game, as perversely even the fact that some clubs are perceived as limitlessly rich, justifies mismanagement as they claim that’s the only way to compete.

    There are other issues too. Money laundering. By placing a bond it ensures that the money that comes into football will be above board and not just dirty money slipped in while nobody is looking.

    I’ll write an article on this proposal if Sir Tony will indulge my convoluted ideas and spammy thoughts.

  • Gf60

    Good article Phil. Wish I had a crystal ball that actually worked!
    Well balanced comments as well. Contributors do make such a positive difference to this site.

    AGS. Just a thought but us normal mortals may have to put up with a 30 day either way contract but wouldn’t we all prefer a 3 year or whatever contract especially if the job move entailed maybe moving country, or at least area?

    With a footballer’s career being a short one regardless, a contract is essential given the possibility that injury could cut a career short. Once the contract is up, then both parties have the chance to renew it or not. Seems fair to me.

  • Ham

    @Phil, I think you are not honest with us. Are you a student?????? You must be the Dean of Economics at the university. Excellent thought proces
    @Sir Tony lets start consultancy work for the EPL for free.

  • Phil Gregory

    @Marc When I was talking with Tony about this recently, he posed that question. I can’t see any other option, ridiculous as it is. From what I’ve read, the authorities are working on closing off this loophole, so some credit to them.

    Valentin: That sounds like an interesting system, and very much an improvement. A very harsh punishment such as relegaation would stop any club taking those sort of risks.

    PaulC – a fair point, and a valid viewpoint. My counteraargument would however be that clubs profits are very much related to how stringent the manager is with the contracts he offers out. If he does this well, he should benefit from it. Also, my idea is based around how the club is a business but run with a social end in mind. If profits are made, then they should benefit the club and the supporters, and there is no better way to do that than in investment on the pitch.

    Naturally, not every penny goes into the warchest,as you say infrastructure is important too. But realistically, consistently high profits would mean there is scope to (sustainably) increase the wage budget.

    AGS: Agree with you. My view on Chelsea is that Abramovich was willing to fund them until they became dominant, but then he thought they’d became sustainable because he’d spent a small fortune on the youth team. Naturally, we know this doesn’t work, but the thought process seems likee one of a billionaire with little prior experience of football. Interesting times ahead for Chelsea, but they only have themselves to blame. Offering Lampard in his recent extension FIVE YEARS when he was already 30ish is a terrible move, especially given his wage and sets an absolutely awful precedent for other players to quote.

    Ham: Ha! Appreciate the comments. If you know any clubs looking for a CEO, let me know 😉

  • AGS

    Hi Gf60
    That’s my point really – that the Bosman ruling is therefore a complete joke IMO, because you cannot treat footballers careers in the same way as a normal profession, but what you have now is a situation whereby clubs are running scared of losing their best players all the time – especially when contracts are up as they no longer get a transfer fee, and players are now happy to let contracts run down as well as they will get huge signing on fees from their next club or for re-signing at the end. So clubs insert ludicrous buy-out clauses into contracts, and push up transfer fees to their maximum, if other clubs come knocking. But they also offer players ridiculous amounts of money in normal wages to stay loyal to them and this sets precedents across the board so even average players are on mega deals, and clubs struggle financially to cope. To me the solution is either to scrap the Bosman ruling altogether and go back to the old system, or go the full way on freedom of movement so that players can talk to other clubs as and when they like and leave at a reasonable notice period, just like normal workers can – many would argue also that this is the way things are going now anyway, because we see it all the time with tapping up and that if a player is unhappy, his club is powerless to stop him leaving ultimately. This last situation will of course see transfer fees come to an end

  • don't believe the hype

    AGS, Wenger has said that he can see a day when transfer fees become a thing of the past. In that case you can see the sense in not paying 30+ million for a player if you may not be able to recoup any of that by the time he is ready to move on. It makes much more sense to grow your own players and spend whatever money you have to keep them at the club. Our manager has good foresight and so far, everything he has predicted about the game is coming to pass.

  • Phil, there is no great loss to Abramovich in pumping money into Chelski.

    Assume his income from his other satellite companies in UK is £100-million.

    By writng off Chelski’s debt as a personal loan and converting ’em into equity, he gains saving from HMRC.

    E.g. he pumped £100-mil into Chelski PLC to cover the deficit.
    Effectively, he saved 43% in personal tax; and at the same time, he had “laundry” £57-mil as pocket money in UK.

    Is that possible?

    He is not daft as it is a matter of time that Chelski will generate a positive pre-tax profit of £80-mil per annum if their turnover contineus to grow, which f course with its growing global image, sponsorships, commercial rights and TV rights will grow in tandem with the success of prem league.

    And of course, a billionaire like Abramovich is just behaving like Maslow’s level of needs, reaching the final level of craving exteem and recognition…and immortality.

    And why he is envious of Arsenal’ style of play and why he got rid of a successful manager in Mourinho.

    Economics has nothing to do with a Sugar Daddy on his path to attain immortality by creating his own toys.

  • tim

    Merlin96 — Nice comments. yes, Chelsea expenditures seem-t0-be a drop in the bucket for Roman A.

    While “economics has nothing to do with a Sugar Daddy and his toys,” it has everything to do with long-term, self-sustaining clubs. Thank God AW has that Masters degree in economics (and I’m teams like Portsmouth wish that ‘Arry even had a primary school level education).

  • tim

    whoops. sorry for the many typos…was written in-haste…

  • Paul C.

    Phil – high profits used to raise wages? Exactly. That is my point. Profits shouldnt be used to fund endless transfers, they should be used for salaries. Managers should have to generate transfer funds themselves. Of course profits can be used occasionally for execptional players, but managers should not be able to say “we made 30million in profits last year, therefore I want to spend 30million this summer” unless they have generated that profit through their own transfer wheeling and dealing.

    I would say using profits on infrastructure, stadium improvements, wages etc is a far, far better use of funds “socially” (with fans in mind) that blowing it on Jonny Foreigner who could be a complete bust and will not be around in ten years no matter what. Fans may not realise that in the short term, as fans are short sighted, but it isnt up to the board to think short term when it comes to finances.

  • critic

    ” Run the club like any other business: cut costs wherever possible, but instead of lining the pockets of the owners, reinvest the funds in the playing staff or put it aside for a rainy day, stadium expansion etc.”

    but that’s the sole reason rich brats buy football club isn’t it?to line their pockets

  • well-endowed gooner

    Phil, I’d like argue that it’s a more expensive step to go from CL hopeful to CL regular, than it is to go from CL regular to CL winner. The reason is that a CL hopeful is buying over-the-odds to make a squad that can compete with CL clubs. They’re buying speculatively, over-paying, going over their budget to make the grade. A CL regular has the same access to players that a CL winner has. There’s not a big difference between a Chelsea, Man Utd or an Arsenal for a player, in terms of wages, prestige, competitions. The difference is that Man Utd or Chelsea are better positioned to winning these things because they’ve got deeper squads, have proper ‘keepers, and aren’t stupid in defence.

  • shotta-gunna

    Phil – Since reading your piece shortly after it was published I wanted to commend you and add another perspective for you to consider. While you did a great job of identifying the signs of decay and crisis in English football, IMO we need to understand how it connects to the bankrupt economic model that is being pursued in much of the world. English football has basically followed the neo-liberal economic model. Privatize the clubs, leverage the club’s assets, financialize the product, lash the club to the banks and hedge funds and viola. Arsenal resisted the siren call but clubs like Man IOU and Liverpool Insolvent have gone the whole hog and now face the prospect of total asset stripping by corporate insiders and the creditors who loaned the funds. Somebody has been making an unbelievable amount of money and don’t tell me it is the players. They are pikers in this game. Sounds familiar.

  • Phil Gregory

    Merlin, some interesting points there. I don’t believe he expects Chelsea to make a profit. Recent growth in TV money isn’t a trend that’s going to continue, and anyway, greater TV money doesn’t equal greater profits, as wage growth tracks TV revenues very closely. Factor in the lack of expansion possible in Stamford Bridge, and there is little he can do if he expects them to be self-sustaining or profitable.

    I strongly believe it is just his plaything. I go out and buy Football Manager 2010, he goes out and buys Chelsea FC!

    Paul: I throw the wage budget and transfer fees into the same boat, which makes sense if you think about it. If the manager gets an additional 50k a week put into his wage budget, that translates to 50 x 52 = £2,600,000 lump sum. So the manager can either use the exytra wages, or use the lump sum as a transfer fee. It’s just a matter of accounting really.

    But overall, so good points there, and I agree. The whole profit into fees, wages, infrastructure decision would ultimately be made by the higher-ups in the club (the manager wouldn’t be getting all of it, only as much as the board/CEO deemed in the best interests of the club)

    Critic: Read again please. The idea is that the clubs make profit which then goes back into the club via infrasstructure etc. This wouldn’t eb against the interest of the owners, as in my Utopian idea of football, the owners would be fans, so anything that benefits the club benefits the owners too. Appropriate Fit and Proper Persons reform would secure this, I believe.

    WE Gooner: You could be right. At that point, my simplistic model goes into fortune-telling, it depends where this current City team end up really. None-CL teams have less funds, and have to pay more as players want CL football for the challenge and prestige. So yes, you could be right.

    However, getting into the CL is a jump in revenue, and throughout the recent history of football, any jump in revenue doesn’t equal an improvement in profits, as wages rise accordingly. So my line of thinking was they have to spend X amount to get into the CL, but hen to improve that squad (and to keep current squad members in contract) they will have to spend a number greater than X.

  • Phil Gregory

    Shotta Gunna: Very much agree with you there. The lack of regulation in the Premier League was never an issue when the owners of the clubs had the club’s interests at heart. Take our own board: many, many times they could have maximised their own interest and taken money out of the club via hefty dividends, and yet they didn’t.

    In this case, the owners effectively self-regulated: their morals and their lvov for the club effectively regulated their actions. With this new generation of owners taking over at most of the clubs in the league, who possess neither a love for the club nor morals, more regulation is needed. As in my areticle, the majority of this regulation should be focused on ensuring the calibre of owners is correct: no more incompotents who think football is a route to a fast buck.

  • Samuel

    So Man. City won,t win anything this season and won,t finish 4th ,which means the rich Arabs will wait another year or so and then pull the plug on their loss making adventure into English football ,bring it on?

  • Sam, if Abu Dhabi can threw away US$1-billion to build a world-class F1 race track, it is loose changes to them to throw away another US$1-billion this summer to build CITEH to win the title next season.

    I read somewhere that if the crude oil price increases by US1 per barrel, Abu Dhabi income will increase by US$500-million daily!!!

    Dubai is an excellent example on how Emirati intends to have the biggest, tallest, largest and best in the world; “money is no objection but just give me the BEST!!!”

    Therefore, it is in the interest of very prem team to beat CITEH and denies ’em 4th spot.

    Otherwise, once in, they will become a permanent feature in CL Cup as Abu Dhabi will buy the best players, the best manager, best coaches, trainers, etc to win the prem title and CL Cup.